Whom Do We Value Today? – Follow the Money

After WWII, accelerated by television’s ad-driven revenue model, marketing rose to new relevance in the American economy. A wealthy United States, relatively unscathed by the ravages of that war with rising cadres of college-educated ex-GIs, found the global market yet reeling and too poor from the war… so the new buy-American consumerism was born. The only big market was here. Want what you never needed or wanted before… and buy it. Lots of it. The stuff of Mad Men. The new America. Unbounded by facts or restrictions, advertising sold toxicity on steroids: cigarettes (touted by well paid doctors in floods of advertising), gas guzzling polluters with tail fins and planned obsolescence, pesticides that worked oh-too-well, disposable plastics that are still with us, clothes made of plastics that fashion dictated constant replacement… a based on lots of energy that needed increasing amount of coal. Bigger. Better. Newer. Keep up with the Joneses.

We paid for the resulting toxicity for a century, as this piece in the in the May 24th CNN News by Jacopo Prisco illustrates: “Facing a crowd of journalists, inventor Thomas Midgley Jr. poured a lead additive over his hands and then proceeded to inhale its fumes for about a minute. Unfazed, he said, ‘I could do this every day without getting any health problems whatsoever.’

“Soon afterward, Midgley needed medical treatment. But the act would have dire consequences beyond his own well-being… The year was 1924, and Midgley, then a chemical engineer for General Motors, had pulled the stunt to support his most recent, lucrative finding: a lead compound called tetraethyl lead. Added to gasoline, it solved one of the biggest problems the automotive industry faced at the time — engine knocking, or tiny explosions in car engines due to the low quality of gasoline that resulted in an annoying sound and potential damage. Lead helped, but at great expense, because the substance is highly toxic to humans, especially children.

“Midgley would go on to leave his mark in history with another destructive invention, also a solution to a problem: the need to replace the noxious and flammable gases used in refrigeration and air conditioning. He found that CFCs, or chlorofluorocarbons, were an ideal substitute and harmless to humans. However, they turned out to be deadly to the ozone in the atmosphere, which blocks dangerous ultraviolet radiation that can cause skin cancers and other health problems, as well as harming plants and animals.” Now we imported most of our stuff, except tobacco products. The addiction process kept that industry here and rich, until…

Stuff… companies got big on stuff. That was mostly the stuff of the 1950s and 60s. The world had not yet completed its infrastructure rebuild, but many were nations replacing their old industrial and resource extraction machines with equipment and capacities far more modern that the prewar machines that continued to define American industry. And our treasure trove of non-renewables was depleting fast. We then seem to have developed what would become an enduring American bad habit: borrowing heavily on lifestyle and “greed, for lack of a better term, is good” was all about investing in financial markets. We no longer invested in ourselves. Foreigners made stuff cheaper anyway. MBAs and market-driven analysts and mathematicians replaced scientists and engineers as the new wealth creators: the new billionaires.

Our tax laws followed. While investment fund managers charge an annual cash management fee (usually 2% of the fund) taxed like most income and, more importantly, took a piece of the upside (usually 20%) which Congress generously taxed at the lower capital gains rate accorded to investors. They gave it a nice name – the “carried interest” rate – but effectively fund managers got to pretend as if their upside was generated by an actual investment they did not have to make.

Loopholes exploded for financial players, quite capable of convincing members of Congress as they filled campaign coffers. But taxing wealth was forbidden, except as part of a death tax or real estate property tax. Only income. Billion-dollar owner shareholders otherwise paid taxes on those shares only when they transferred them. They could borrow against those shares, deduct the interest on the loan, but the loan proceeds themselves were tax free. As the shares increased, these mega-rich players just rolled over their debts and borrowed more. And when those they elected had a chance, they were very happy to reward their contributors with tax cuts. For example, during the Trump administration, the federal corporate tax rate dropped from 35% to 21%... and those stocks soared. We really didn’t make much anymore. Our values had changed.

Mega-titans of finance displaced just about every other job capacity as our heroes. “The top student had been appointed a federal appeals court judge earning, by Wall Street standards, tip money. A lot of the people with similarly impressive academic records became professors. I could picture the future titans of Wall Street dozing in the back rows of some gut course like Geology 101, popularly known as Rocks for Jocks.” Calvin Trillin, New York Times, October 13, 2009. Underperforming students with little concern for the harm they created. Like Donald Trump. And the new kings of “derivatives.” Titans of the 1980s had money to bet in the new millennium.

Leveraged takeovers – where the company being taken over would pay for the cost of the money borrowed to buy that same company – and selling artificial “paper” that represented a collective bet on the rise and fall of… er… just about anything, became an attractive place to make a pile of cash. As real estate soared (and fell), leveraged commercial real estate, aggregated residential mortgages issued without requiring downpayments: subprime loans precipitated a market crash… and the federal government bailed out some “too big to fail” mega-financial institutions.

But the 1980s had also defined a rising NYC real estate entrepreneur: “That period was the greed-is-good era in which [Donald] Trump sold himself nationally as a titan of industry, despite a relatively small, and local, real estate portfolio. He had just built a glittering tower on Fifth Avenue, infuriating elites and demanding a tax break from the city. And it is the era he alludes to constantly, referring to 1980s cultural touchstones… [to make America Great Again.]… It is also the last time Mr. Trump’s preferred public image was intact, and it soon came crashing down. The decade ended with a monthslong tabloid war in which people around the city chose sides between him and his first wife, Ivana.” Maggie Haberman for the May 25th New York Times.

The new power brokers, seeking further tax and regulatory loopholes, were ready to trash anything that stood in their way to make even more money. The 1930s New Deal Social Security benefits had been predicated on a simple economic reality: a large pool of younger workers would fund a rolling retirement fund for a smaller pool of retirees. In a world of a contracting population – today – where there are significantly more older retirees than younger workers, the “greed is good” set did not even look at that change. Instead, they demanded that the retirees give up benefits (notwithstanding that these retirees paid for those benefits), now labeled as “entitlements.” Donald Trump’s peeps. They had obscene wealth but wanted so much more.

I’m Peter Dekom, and the United States needs new heroes and a big new economic reset… just not Donald Trump and the nightmare economic reset he wants to impose on our nation.